CEOs' Rosy Spin Whitewashes Weak Results

Corporate America has been talking a good game this earnings season, but a closer look shows the results are not nearly as strong as CEO optimism might lead investors to believe.

In fact, a number of companies are coming up short on either earnings or revenue as measured against Wall Street estimates, even as their leaders try to paint a picture of steady returns and solid prospects for 2013. Some investors say earnings expectations have been managed so low they are easy to beat, even if sales come up short.

The 24 hours through Friday morning — the busiest period yet in this earnings season — serve as a good example of the phenomenon.

Some, like the insurer Travelers Cos. Inc. and the railroad operator Union Pacific Corp., reported record-setting figures, born mostly of pricing strength in their businesses.

But more companies had quarters like the Internet search heavyweight Google Inc. or the fast-food chain Chipotle Mexican Grill Inc., whose core markets appear to be slowing quickly, much to shareholders' consternation.

Even though a majority of S&P companies have beat expectations overall this season, 79 percent of the S&P companies that reported results in the last day missed earnings and/or revenue estimates.

It is a further confirmation that USA Inc is in a challenging environment that does not look to turn better anytime soon.

But don't take the CEO's word for it.

Reuters analyzed the press releases issued by those companies, specifically isolating the lead quote from the chief executive in each one.

Some were brief, just a sentence or two. Many were entire lengthy paragraphs. All totaled, they spewed out 2,669 words on how their corporations did in the last three months.

Phrases in the releases point to a general sense of well-being that may not jive with the actual results.

Excluding generic words, the most common phrases were "we made good progress," "we are well positioned," "we are pleased with" and "we are pleased to."

In fact, there was not a single four-word phrase anywhere in any of the reports that indicated a negative sentiment. Experienced investors are not necessarily surprised by the behavior, the numbers notwithstanding.

"I think this is business as usual," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "You tamp down your expectations, you beat them, then you thump your chest."

INCONSISTENCY REIGNS

Investors are growing increasingly frustrated by the drum beat of weak figures, seemingly without explanation. General Electric was the latest example Friday morning.

"There it is again, this whole revenue story. They hit on the earnings number but revenues keep missing. That is the story that we are hearing across the line," said Ken Polcari, managing director of ICAP Equities in New York.

It "further solidifies the same story, that people are concerned. And although these companies are beating these numbers, the numbers are much lower so the beat is not that difficult. But clearly they are all missing on the revenue line, which is a concern."

The beat rate for revenue forecasts so far this season is 41.4 percent, trailing both the 55 percent average over the past four quarters and the long-term average of 62 percent, according to Thomson Reuters data.

But if they are actually doing that badly, they certainly are not talking about it.

Breaking it down by the word, excluding generic words like "quarter" as well as articles and prepositions, the most common word was "growth." It appeared some 30 times, often in the context of actually having it.

To be sure, not everyone was so rosy. Some companies acknowledged a lack of forward momentum or challenges in expanding in the current environment.

Among them, Boston Scientific is "focused on executing our strategy to drive this organization back to revenue growth," while Capital One said it could sustain strong returns "even in an environment with low industry growth."

"Growth" did not stand alone, though.

After that, the next-most common non-generic word was "strong," appearing 19 times. In contrast, some derivation of the word "weak" was used only six times.

Lower down the list, "progress" showed up six times — and yet, despite the shaky economy, "uncertainty" only turned up once.

That said, there some corporate chiefs tried to embrace their circumstances and at least reassure investors that, current challenges notwithstanding, there is reason to think things will get better — someday, anyway.